on the question of land acquisition for private...
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On the Question of Land Acquisition for Private Development:
Lessons from the US, Indian, and China
Subhash Ray University of Connecticut
Working Paper 2014-32
November 2014
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This working paper is indexed on RePEc, http://repec.org
On the Question of Land Acquisition for Private Development:
Lessons from the US, India, and China1
Subhash C Ray, University of Connecticut
Abstract:
In most countries the government is empowered by the Constitution to acquire privately
owned land for public use on payment of fair compensation for the land acquired. For
infrastructure projects like a highway or a dam, the land acquired remains under public
ownership. In many cases, however, private land is often taken for industrialization or
even construction of commercial and residential real estate in the name of urban
redevelopment. In such cases, the acquired land is transferred to a private party. This
paper draws upon the parallel between different incidents of forcible acquisition of
private land in the US, India, and China. The cases of General Motors in Poletown near
Detroit, MI in the 1980s and the recent events relating to Tata Motors and the agricultural
land in Singur, West Bengal raise a number of questions about government taking of land
for private development. A brief review of the history of land acquisition through
Eminent Domain in the US serves as the background for a discussion of the different
important questions like the problem of strategic holdouts and fair compensation. The
essay also looks into the special problems of land acquisition in China.
JEL Classification: R14, R52
Keywords: Eminent Domain; Fifth Amendment; Strategic Holdout;
Fair compensation; Land Use Rights; Industrialization
1 This paper is based in part on my paper “Detroit theke Singur” (in Bengali) published in Desh Patrika in
2009. It also extends the earlier UCONN Working Paper 2010-09.
2
On the Question of Land Acquisition for Private Development:
Lessons from the US, India, and China
Subhash C Ray, University of Connecticut
Models of economic development and growth- ranging from the Lewis Model of
economic development in a labor surplus economy(1954) to the rigorously mathematical
neoclassical models in the tradition of Solow (1956) - focus exclusively on capital
formation as the primary source of economic growth and pay little attention to
availability of land. Yet, industry cannot be built on thin air and unless abundant land is
freely available for reclamation and settlement (as was the case in the US) setting up new
plants requires acquisition of land from present owners and transferring such land from
its present use. This is a particularly difficult problem in countries like India and China
where per capita availability of usable land is already low. Further, industrialization goes
hand in hand with urban development for housing and infrastructure and cities and towns
continuously encroach upon the nearby rural communities. In a well developed market
for land, voluntary transactions between the buyer and the seller on mutually agreeable
terms should facilitate transfer of land from agricultural or residential use to a different
industrial or commercial use. Unfortunately, however, when land is being acquired from
a large number of small landowners, if some individual owners decline to sell, the entire
deal will collapse because the plant or the real estate to be developed requires the
consolidated land without holes in between. This is a case where the government
intervention may be needed to make the entire project viable.
A different kind of public projects may require the government to forcefully acquire land
from unwilling owners. Construction of dams, highways, and other such projects fall in
this category. The fundamental difference is that such infrastructure projects are not in
the interest of any private commercial enterprise and typically remain in the public sector.
Construction of a hydro-electric power plant does require eviction of a large number of
people. The Three Gorges Dam in China or the Sardar Sarovar Dam in India are
examples of large scale infrastructure building that requires mass eviction. The morality
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of making one group of people pay for the benefit of a different group of people (even
though beneficiaries may outnumber the evicted) may be debated. However, if non-
polluting technology of power generation is to be promoted, there are few alternatives.
Any reform hurts some people and helps others. The question in those cases is how the
adversely affected people are not only fairly and fully rehabilitated but also awarded a
share of the net benefit that accrues to the society.
This essay does not address the question of land acquisition for public use (either
directly, as in the case of a road, or indirectly, as in the case of a power plant). Instead,
the focus is entirely on government acquisition of land for private enterprises often
justified on the ground that it would generate local economic benefit for the population.
The rest of the paper unfolds as follows. The paper starts with a brief narration of the
recent experience of land acquisition for a small car project in Singur, West Bengal (that
ultimately failed due to political agitations) and a remarkably similar precedent involving
the General Motors in Poletown near Detroit, Michigan. This is followed by a broader
discussion of different instances of land acquisition through the exercise of the Eminent
Domain authority of local governments in the US starting from 1945 in Washington DC
all the way to the recent experience in New London, Connecticut. The next section
considers the question of land acquisition and fair compensation from an Indian
perspective. Finally, the special problems relating to farm land acquisition in China
(where there is no land ownership and only land use rights) are addressed. The paper
concludes with a summary of the lessons from the experiences in the three countries.
Tata Motors and Singur, West Bengal, India
After decades of presiding over the systematic decimation of manufacturing in what once
used to be one of the leading industrial states of India, Buddhadev Bhattacharya, the
Marxist Chief Minister of West Bengal woke up to his new found faith in industrial
reform and laid out the red carpet for Tata Motors to set up an automobile manufacturing
plant in the fertile paddy fields of Singur near Calcutta. Months earlier, the Tatas had hit
the headlines across the world announcing their plan to roll out in the near future their
newest model priced under $2500. The land in Singur was the preferred choice of the
auto manufacturer because of its railway and highway links as well as its proximity to the
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city of Calcutta. In an effort to sweeten the deal, the state government resorted to the
Indian version of the Eminent Domain law (the Land Acquisition Act) under which the
state would procure and assemble the land and make it available to the company at most
favorable terms. Incidentally, the government refused to publicly disclose the terms of the
deal. Agricultural land holdings in India are typically very small and the project involved
a large number of small land owners. What made the problem more complex was the fact
there were thousands of share tenants and landless laborers who would lose their
livelihood if the agricultural land is taken away. Not surprisingly, a large segment of the
landowners refused to sell. This, by itself, is nothing unusual. In virtually all cases of land
acquisition through the exercise of the Eminent Domain laws, the government faces
resistance from unwilling sellers. What was unique about the case of Singur was that it
immediately became a major political issue in the state. While there were many genuinely
idealistic supporters of the resistance movement, Mamata Banerjee, the firebrand leader
of the Trinamul Congress party seized on this opportunity to assail her arch enemy the
Marxist Chief Minister for high handedness and for cuddling up to Big Business in total
disregard for the interests of the rural poor. Political confrontations in India in general
(and in West Bengal in particular) easily escalate to widespread violence leading to loss
of human lives. Singur was no exception. Moreover, there were several incidents of
suicide by landowners and farm workers who could not deal with the prospect of losing
their livelihood. Supporters of the resistance group with ample help from the cadres of
Trinamul Congress (TMC) set up road blocks on the busy highway nearby paralyzing
road transportation. There were acts of vandalism at the factory site. The Marxist party
cadres with the help of the police engaged in rampant intimidation of the unwilling
landowners and the protesters. The situation worsened and posed a major law and order
problem. Meanwhile the Tatas were fast losing patience with the hostility from its
neighbors. Within months they abandoned the project at Singur and moved their
operations to the business friendly state of Gujarat.
The events in Singur followed earlier incidents of violence in Nandigram, another rural
community where forcible acquisition of agricultural land for the planned development of
a special economic zone had culminated into state police gunning down unarmed
villagers including women.
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Riding on the wave of popular discontent with the corrupt Marxist regime, Mamata
Banerjee defeated the Left Front led by CPI(M) in the elections for the state legislature
held in 2011 and ended their 34-year old control of the state government. One of the
electoral promises of Mamata Banerjee was restoration of farm land taken for the Tata
factory in Singur by the earlier previous government to the original owners. However,
even as of now, the acquired land remains a virtual wilderness with a fenced off
unfinished factory in the middle of what once was a fertile farm land. Putting Humpty
Dumpty together again has proven to be a goal beyond the reach of the present regime.
Public opinion in India on the question of acquisition of agricultural land for industrial
development is deeply polarized. Both the supporters and the opponents of exercising
Eminent Domain powers for land acquisition are quite vocal. Unfortunately, however,
given the highly politically charged environment of the state, people are driven to one
position or another on this question mainly by their political affiliation with one party or
another.
The sole objective of this paper is to raise a number of questions that one needs to
address before taking a position on the issue of land acquisition. The discussion in the
following pages is politically neutral and refrains from judging which side bears how
much responsibility for the violence in Singur.
General Motors and Poletown, Michigan, USA2
The year 1980 was especially difficult for the city of Detroit, MI in the automotive
heartland of the US. The unemployment rate exceeded 18%. In fact, most of the
traditional smokestack industries in the American Northeast and Midwest were mired in a
deep recession. Companies were lining up to leave the wasteland of the union-dominated
Snowbelt in search of greener pastures in the Sunbelt of the emerging South. In Detroit,
as in many other metro areas in the region, urban decay was evident in the deserted
factory buildings and other real estates in disrepair. The eroding tax base that resulted
from this economic slowdown, was taking a heavy toll on the fiscal coffers of the city
administration making it impossible to provide the level of public services like law
enforcement and education that the citizens have been used to in the past.
2 This narration draws heavily from Corsetti (2004).
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In the midst of all this appeared their own Prince Charming in the shape of General
Motors. They were looking out for land for expanding their production facilities for their
most prestigious model, Cadillac. Without additional land, they would have to move their
production elsewhere. On the other hand, if suitable land became available, they would
prefer to locate their expanded production facility in Detroit itself. This would create
6500 new jobs. Of course, there were conditions attached. They needed 500 acres of fully
assembled land close to the highway and railroad. Most important of all, should any
individual landowner refuse to sell, persuading and evicting the unwilling owner would
be the responsibility of the City and not of General Motors.
At this point in the narrative, the average reader in West Bengal may feel that they have
read all about this episode as it was unfolding in the local daily newspapers and have seen
live coverage of all this only recently on the local TV channels. Given the close similarity
between what happened in Singur near Calcutta and the experience of Detroit, this would
be a pardonable error. One may easily confuse Tata Motors in India with General Motors
in the US or mix up Durgapur Expressway near Singur with the Chrysler Expressway
(I-375) in Detroit.
Cinderella’s birthmother could never have refused a marriage proposal from the Royalty.
Nor could the city council miss such a golden opportunity. Search for land that meets
these specifications was launched in full swing immediately. It was decided before long
that the community of Poletown would fit the bill. Most of the residents of this lower
middle income working class neighborhood were either of Polish descent or African
American. The authorities chose this community as the preferred location to be offered to
General Motors.
There was, however, one roadblock standing in the way to such an easy solution to the
problem. Evacuating Poletown would require the eviction of the 3500 residents of that
neighborhood. About 1500 homes, 144 shops and businesses, 16 churches, a school, and
a hospital – nothing could remain. It would certainly be most unfortunate. But, what else
could be done? Some sacrifice becomes unavoidable for a worthy public cause!
Evacuation of Poletown turned out to be far from easy. Resistance by the residents soon
became national news keenly followed by people all over the country. A church became
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the headquarters of the movement. Raplh Nadar, the well known activist for consumers’
rights, came to Poletown in support of the locals. The residents went to the Michigan
supreme court challenging their eviction. In the court, the Town argued that acquisition
of the land for the proposed Buick-Oldesmobile-Cadillac plant of General Motors will
help to address (at least partially) the unemployment problem contributing to regional
economic development and thus benefit the population overall. Hence, exercising the
government’s rights to acquire land under the Eminent Domain laws is perfectly
legitimate. Michigan Supreme Court concurred with the Town.
Armed with the court’s decision, the Town continued its evacuation campaign with
greater enthusiasm often resorting to arson and other means of intimidation by hired
agents. With much lower stakes in the resistance to start with, the tenants were the first to
move out. Even the home and other property owners also began to lose heart and started
leaving gradually. Towards the end, the Immaculate Conception Church was the lone
survivor remaining the last bastion of the resistance. But the superiors in the church
hierarchy decided to sell out and instructed the priest accordingly. In the very end a
dramatic raid by the police evicted the elderly priest and his few remaining parishioners
throwing them out in a mighty show of force. Next day, the church, and with it the last
vestige of what once used to be Poletown, was razed to the ground.
In the end, however, the Town closed its books deep in the red. Despite its victory against
the resistance committee in the state Supreme Court, in many cases the Town lost to
individual claimants on the question of the amount of compensation for the acquired
property. For example, it had to pay the owner of an oil depot 5 million dollars instead of
the 350 thousand dollars it had originally paid. The Town ended up paying 300 million
dollars in litigation costs, compensations paid to evicted owners, and consolidation and
preparation expenses on the land acquired for General Motors. As the buyer, the
automobile company paid only 800 thousand dollars for the land. Further, they were
granted partial tax relief for years to come.
Most regrettably, the 6500 new jobs that was the goal of the entire effort by the Town
never materialized. Even at its peak levels of production, General Motors never employed
more than 3000 people in the new plant.
8
Land Acquisition through the Eminent Domain Laws in the US: A brief history
The US is often viewed as the ultimate sanctuary of private property rights. It is often
argued that one person’ right to property would prevail over another person’s right to life
under US laws. Then, how could something like Poletown happen in this country? What
lies behind this is the Eminent Domain Law. In India the Land Acquisition Act under
which the state can condemn and acquire private land from unwilling owners is generally
regarded as an anachronistic leftover from the British colonial period. However, similar
laws under different names are actually in place in all countries in the present time.
The Fifth Amendment to the US constitution makes it illegal for the state to acquire
privately owned land for public use without paying due compensation to the owners.
Interestingly, nowhere does it explicitly mention that it is legal for the government to
acquire land for public use from unwilling private owners. But it is clear from the
warning about payment of fair compensation that it is, indeed, legal to do so. One needs
to be reminded in this context that in the post-war history of the US, Poletown was not
the first instance of exercising the Eminent Domain Law by government. Nor was it the
last. In litigations regarding such land acquisition different courts in different regions of
the country and in different years have ruled in different ways. Let’s look at some of the
important cases.
Many sections of Washington DC in 1945 were in a shocking state of urban decay. There
were areas with streets lined with dilapidated housing units without sanitation infested
with rats and other rodents and were completely unfit for human habitation. Facing a
grave threat of diseases spreading from these neighborhoods, the US Congress enacted a
law authorizing the City to condemn properties in many such localities for urban
redevelopment. Within one such area of urban blight earmarked for condemnation stood
a supermarket that was just as clean and functional as others in the rest of the city. The
owner objected to its demolition with the rest of the real estates in that area and went to
court where he argued that because the store did not pose any health hazard like other
buildings in the area, his store should be exempt from demolition. In this landmark case
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well known in the legal archives as Berman v. Parker3, the court ruled against the store
owner on the ground that the redevelopment project could not be carried out if his
property was allowed to remain its existing location. Therefore, even though the store
itself did not pose any public health hazard by itself, in the greater interest of the overall
project it had to be condemned like other buildings in the area involved. It should be
noted here that the developer of the new housing units was a private entity and the new
residents would also become private owners of the property.
Fast forward another two decades. In the 1960s nearly half of the land in Hawaii was
owned by only 72 families. These landlords engaged tenants to cultivate their land. In an
effort to bring their feudal monopoly to an end, the government decided to acquire their
land and redistribute it among smaller owner cultivators. Needless to say, the landlords
went to court. But the court4 ruled that although such land acquisition was not
specifically for public use, expropriating the landlords resulted in public benefit. Hence, it
constituted a legitimate use of the Eminent Domain law.
After many years of uninterrupted prevalence, land acquisition under Eminent Domain
received its first major setback in 2004. Again it was Detroit. Again it was the Michigan
Supreme Court5. This time, Wayne County in Michigan was trying to acquire 853 acres
of land adjacent to Detroit International Airport. The objective was to develop a modern
shopping mall and an office park in that area. The justification was the usual one – public
benefit from regional economic development. This time, however, the court sang a
different tune. The justices ruled categorically that acquiring land from one private party
for the profit of another private party was illegal and unconstitutional. This was true even
if such transactions yield any public benefit as a bye product because the primary
motivation remains the pecuniary benefits accruing to a private party. Moreover, the
court effectively reproached itself by recording that its earlier decision in the Poletown
case had been unjust.
3 US Supreme Court (1954) 4 US Supreme Court (1984) Hawaii v Midkiff 5 Michigan Supreme Court (2004) Wayne County v. Hathcock
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As such, the court decision in the Wayne county litigation was not the last word on
Eminent Domain issues. Another major landmark was the famous Kelo v. New London
that started in the Superior Court in New London, CT and ultimately got decided in favor
of the City in the Supreme Court. In this case, as in most others motivated by regional
economic development, the city wanted to acquire a number of private homes and land
parcels in the Fort Trumbull area adjacent to the Thames River for the purpose of
developing shopping malls, office buildings, and upscale condominiums. Once a vibrant
and thriving metropolis, New London suffered a reversal of fortune through a prolonged
period of economic downturn. By the 1990s, it was officially declared to be a depressed
region. On top of this, in 1996 the US Department of the Navy closed down its
Submarine Training Center located in the Fort Trumbull area leading to loss of another
1500 jobs. This further aggravated the economic crisis in the region. By 1998, years of
unemployment and poverty had lowered the population of the city to only 24,000. The
city government was now desperate to do something that would stop the drain. It was in
such a grave situation that the New London Development Council was formed. A project
to develop a state park in Fort Trumbull was launched with a budget of 10 million
dollars.
In February Pfizer, the pharmaceutical giant, announced its plans to build a 300 million
dollar research center in the Fort Trumbull area. The town council became optimistic that
other major companies might follow the lead of Pfizer and locate their business in this
area. Getting the nod from the town, New London Development Council charged ahead
with new zeal.
The Fort Trumbull area in the city of New London juts into the Thames river like a
peninsula. At that time it contained 155 homes besides the 32 acre property where the
recently closed Submarine Training Center of the US Navy was located. In the Master
plan for redevelopment, the whole area was divided into 7 sectors. One sector adjacent to
the river had provisions for a boardwalk along the river, parks, restaurants, and souvenir
shops for tourists. Another was earmarked for luxury condominiums. Others were
designed for shopping malls, office and technology parks, and parking lots. The land
acquisition campaign started in full swing. Most of the targeted 90 acres of land was
acquired without much difficulty. But 9 families owning 15 homes and parcels of land in
11
this area confronted the Goliath trying to evict them from their homes. Among them were
Susette Kelo and Wilhelmina Dery.
Susette had been living in her home in Fort Trumbull since 1997 and had spent a
considerable sum on home improvements. She was very attached to her home, the
adjacent garden, and loved their proximity to the river. At no price would she like to give
her home up. Wilhemina was born years ago in the same home and had been living with
her husband Charles with whom she was married 60 years back. All her life’s memories
were there within the confines of her house. Selling her home would be like selling off
her entire past!
Failing to reach any agreement with these unwilling homeowners, the Development
Council (effectively, the town) tried to evict them by invoking the Eminent Domain law.
It should be noted here that these homes were not blighted or otherwise condemnable.
Nor was there any reason to suspect that the owners were holding out hoping to get a
better deal on their homes.
With no other options left, Susette and her fellow homeowners went to court. In the law
suit filed against the town at New London superior court in 2000, they argued that the
town was seeking to acquire their homes with the sole objective of developing
commercial and residential property to be sold to other private parties. The Fifth
Amendment permits exercise of Eminent Domain for acquiring private homes and land
only for public use. Their homes were not being acquired for public use. Hence, evicting
them from their homes was unconstitutional. It is worth noting that even as the litigation
was in progress, the town was negotiating with Corcoran Jennison, a private real estate
developer, over a 99 year lease of the property for an annual rental of $1.Of course, no
final deal had yet been signed.
After 7 days of hearing, the court ruled in favor of the homeowners in respect of 12 out of
the 15 parcels under litigation. Even though the verdict was favorable overall, the
homeowners appealed to Connecticut High court against the negative ruling regarding the
remaining 3 properties. On its part, the town naturally went to the High court.
Surprisingly, this time the wheel turned in exactly the opposite direction and the ruling
was against the homeowners in respect of all of the 15 parcels. The judges argued that the
Development Council had legal rights to acquire all of those properties for the sake of
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economic development. In their judgment, the redevelopment plan had not been drafted
specifically for the benefit of Pfizer or the developer. Because the main objective was
regional economic development, such acquisition was for public benefit even though not
explicitly for public use like building a highway or a post office. Therefore, eviction of
the unwilling homeowners on payment of fair compensation was by no means
unconstitutional.
Hoping for an ultimate vindication, Susette and her fellow plaintiffs went to the US
Supreme Court as their last resort. In the court they argued that while it was true that
there will be jobs created due to economic development leading to public benefit, the
main beneficiaries would be specific companies and individuals. Any benefit accruing to
the population in general was a minor bye product of the project. The new owners of the
acquired land would be under no legal obligation whatsoever to make it available for use
by the public. For this reason, the court should declare the practice of acquiring private
land for economic development as illegal.
The 2005 decision in the famous Kelo v. New London case at the US Supreme Court6 also
went against the homeowners albeit by the majority of only one vote. Voting in favor of
the Development Council were Justices Steven, Souter, Breyer, Kennedy, and Ginsburg.
Dissenting with the majority opinion were Justices O’Connor, Scalia, Rehnquist, and
Thomas.
Those in favor argued that numerous courts of law in different places and at different
times have upheld the decision to evict unwilling landowners through the exercise of
Eminent Domain powers for economic development has been considered. It is apparent,
therefore, that the legal system of the country does not regard this practice as
unconstitutional. The evicted homeowners are always the victims in some form or other.
The Court is definitely under obligation to ensure that the evicted owners are fairly
compensated for their property. But both the right and the responsibility to decide how
exactly an urban development plan should be implemented in any specific context rests
with elected popular representative and not with the Court. The only obligation of the
Court is to ensure that land is not acquired for the sole benefit of a specific person or
institution. It has already been determined at the State Supreme Court of Connecticut that
6 U.S. Supreme Court Kelo v New London (2005)
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the development plan in New London had not been designed for the benefit of any
particular business entity. The Supreme Court, therefore, has nothing else to add.
Condemnation of these properties will ultimately lead to jobs for a large number of
people. Therefore, evicting the owners has been a legitimate exercise of the Eminent
Domain law by the local government.
The dissenting Justices argued that every time a new business is started somebody gets a
job and tax collection goes up. It would, therefore, be possible to acquire any piece of
private real estate in the name of economic development. This, effectively puts a citizen’
fundamental right to own property at risk!
Unfortunately the dissenting votes brought no redress to Susette and the other
homeowners because the majority opinion in the Supreme Court decision drew the final
curtain on their valiant fight. However, the debate goes on even though this particular
case was closed. Efforts are under way in many states to enact laws restricting land
acquisition through Eminent Domain laws.
Kelo’s Revenge?
In an ironic turn of events, in 2009 Pfizer decided to move its R&D operations from New
London, CT to a nearby facility in Groton, CT leaving the homes and land acquired by
the city government through the exercise of the Eminent Domain Rights a wasteland.
As Patrick McGeehan reported in NewYork Times (Nov 12, 2009)
“Pfizer said it would pull 1,400 jobs out of New London within two years and move most
of them a few miles away to a campus it owns in Groton, Conn., as a cost-cutting
measure. It would leave behind the city’s biggest office complex and an adjacent swath
of barren land that was cleared of dozens of homes to make room for a hotel, stores and
condominiums that were never built.
The announcement stirred up resentment and bitterness among some local residents. They
see Pfizer as a corporate carpetbagger that took public money, in the form of big tax
breaks, and now wants to run”.
An Indian Perspective on Land Acquisition for Private Development
Generally, the central government or the state governments resort to “taking” of private
land from unwilling owners for one of two objectives: for public use or for public benefit.
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When private land is taken for the construction of a post office, a railroad, or a highway,
the infrastructure remains available for use by the public (sometimes at a cost as in the
case of a railroad or a toll road). In some other cases, the acquired land is not directly
available for public use. This happens when private land is taken for the construction of
an irrigation project, a dam for flood control, a hydro-electric power plant for electric
supply, or even the construction of a steel plant in the public sector. But the beneficiaries
of these projects are all people and not selected individuals. These are examples of taking
for public benefit even though not for public use. Moreover, in both types of takings, the
land taken and the construction on such land remains under public ownership.
There can always be difference of opinion regarding exactly where a dam or a public
sector steel plant should be located. In the 1950s, under the First Five Year Plan, the dam
on the Damodar river and the hydro-power plant were built by the Damodar Valley
Corporation (a semi-autonomous government enterprise) in the Maithon-Panchet area in
the state of West Bengal. This caused the immersion of a large land mass in that
particular area evicting landowners in the affected region. One may reasonably argue that
building the same project at a different location in what was then the state of Bihar would
have been a better decision. In some cases, whether a dam should be constructed at all
may remain a controversial issue. On the question of building the Sardar Sarovar Dam on
Narmada rive in Gujarat, Narendra Modi (then the Chief Minister of the state) and
environmental activists like Medha Patekar and Arundhuti Roy (the famous author who
won the Booker Prize for her novel The God of Small Things) hold diametrically opposite
views. Which side is right on this question is still being debated. But everybody concedes
that if a dam has to be built at all, people in that area will necessarily be evicted. In the
interest of national economic development, building some infrastructure projects like
dams and highways will be unavoidable. In such cases, unwilling property owners have
to be evicted through the exercise of the Eminent Domain laws. In all such cases, the
priority should be on the proper relocation of the displaced owners and fair compensation
for the property taken. None of the few cases of taking land in the US that were discussed
in the previous section pertained to construction of infrastructures. But even in the US (as
in all other countries) there have been instances of taking land for building highways,
dams, or airports.
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Sometimes the acquired land does not remain under public ownership but is transferred to
a new private owner. But even in those cases, the sole objective of taking is public
benefit. A prime example of such taking in the US is the Berman v. Parker example in
Washington D.C. described above. In that instance, the newly constructed housing units
that replaced the dilapidated rows of unhygienic houses became the personal properties of
the new occupants. As already noted, this condemnation led to the demolition of a
supermarket that posed no health hazard. But, because the entire project was undertaken
to protect the population from the threat of a potential epidemic spreading from those old
rundown houses, taking the supermarket was a legitimate (though unfortunate) collateral
damage that was unavoidable. Similarly, in the Hawaiian case, land appropriate from the
big landlords was redistributed to new owners. This was clearly an example of taking
property from one private owner and handing it over to another private owner. But, here
again, the objective was to effect a more equitable distribution of land by breaking the
feudal monopoly of the latifundia. Personal gains accruing to the newly settled owners
were incidental. Hence, the taking was justified.
In most cases, however, land is taken from private owners in the name of regional
economic development. In such instances, the rationale for exercising Eminent Domain
powers is by no means obvious. In Poletown, land was taken for General Motors. In
Singur, land was taken for Tata Motors so that they would build their the automobile
plant for manufacturing their new model, Nano, in the industrially depressed state of
West Bengal. It goes without saying that the new General Motors plant in Michigan or
the Tata Motors plant in Singur would create jobs. But the main benefit of the land
acquisition in both cases would go to the auto manufacturer. Then why should not the
automaker purchase the land at fair market price from the owners through direct
negotiation? After all, when the plant is built (no matter how the land is acquired), jobs
would be created anyway! Why should then the state or the local government act like a
real estate agent for the buyer? On the face of it, the question seems to be a simple one.
But there are more complex issues in the background. In such cases, one cannot buy land
like buying livestock in the country fair.
Economics and Law experts have given this problem considerable attention. In many
cases, it so happens that the price offered by the buyer is more than the minimum amount
16
of money that the owner would be willing to accept for his land if he knew that it was a
‘take-it-or-leave-it’ final offer. But he may still refuse to sell hoping for an even higher
offer from the buyer. This kind of stalling tactic and refusal to sell expecting a better
price is often described as strategic hold out. This can become a serious problem when a
well known company seeks to assemble a large number of small properties from many
different owners. The owner of a factory does not negotiate with each individual worker
about the wage rate. Typically, the labor union bargains as the collective voice of all
workers. Once a wage agreement is reached, who ever agrees to work for this employer
accepts this wage rate. Anyone who finds the wage unacceptable refuses to work for this
firm. In the case of purchasing land, however, there is no representative body speaking
for all the property owners and the buyer has to negotiate with each owner individually.
This can entail enormous cost in terms of time and money. If the government acts as an
intermediary, transaction costs for such land purchases can be minimized. But it would
not be enough for the government to simply to reach an agreement on what the fair price
(per acre of land) should be. It has to persuade any unwilling owner to sell his land. The
fundamental difference between labor and land as inputs in this situation is that if own
worker refuses employment, the firm can get a replacement and does not need to close its
factory down. But, if the owner of a plot of land located critically at the center of the
planned factory site refuses, the whole project may have to be jettisoned. If most owners
have already sold or are ready to sell, the government may be forced to take coercive
measures in order to evict the remaining hold outs. This is often cited as the main
argument in favor of ‘taking’ by the government.
There is another and an even more serious problem. As more and more properties get
sold, the importance of the remaining properties for the viability of the project continues
to increase. Suppose 87 of the 100 properties involved have already been sold. By this
time, the remaining 13 owners fully realize that their land is enormously more valuable to
the buyer than before. Having already spent a fortune on those 87 parcels of land, the
buyer would not be ready to jeopardize the entire project for the remaining 13. Naturally,
they keep delaying in the hope of a large gain. The only way such strategic holdout
problem can be resolved is by evicting the remaining owners.
17
Those who oppose the use of Eminent Domain for commercial development point out
that there is a way to use the market to assemble land without resorting to eviction by
law. Land owners have an incentive to hold out strategically only when they know that
the buyer is a big company with deep pockets. One way out of this would be for the
buyer to employ agents (like smaller local property dealers) to buy and assemble the land
on its behalf7. If the buyer remains in the background and the seller does not know that he
is ultimately selling his land to the big buyer like General Motors in the US or Tata
Motors in India, he would be more willing to sell out when the price offered is acceptable
to him. One may argue that this line of reasoning is only theoretical and cannot actually
work in real life. It should be pointed out to them that Harvard University and Disney
World did acquire and assemble thousands of acres of land through buying agents
without disclosing their own identities as buyers. Again, it may be argued that what was
feasible for a large and savvy organization like Harvard or Disney, may not be so for
another smaller organization. But here again counter examples can be cited. In Las
Vegas, a smaller development company used this method to buy a large number of small
properties (none greater than 5 acres) and assembled them into a 2400 acre commercial
district. In another instance, a developer assembled 11 parcels of land to construct a 1400
square shopping mall with space for 160 retail outlets in Providence, Rhode Island.
Similarly, in West Palm Beach, two developers used 20 separate buying agents to 300
parcels of land from 240 different owners and developed a 26 block subdivision
consisting of offices and shops.
There is ample evidence that it is possible, indeed, to acquire and assemble large tracts of
land without involving the government. It is, therefore, not fair to use state authority to
evict individuals from their homes for the profit of other private interests. A market
transaction free of coercion by state or local government should is desirable.
Another important question naturally arises in this context. Irrespective of how the
property is acquired (i.e., by government taking or market deal), how should the fair
compensation for the property be determined? One may argue that a fair price would be
the average value of similar properties sold in the area in the recent past. This, however,
is not the case.
7 The discussion here draws extensively from Kelly.(2003).
18
Consider the following scenario. Suppose that the underground railway network know as
Metro Rail in Calcutta is being expanded and a subway station is to be built in a new
locality. Both A and B are homeowners in the targeted area. Their homes are quite similar
and would fetch the same market price at this moment. But one of the two homes needs
to be demolished for the construction of the station. Metro Rail is really indifferent
between the two properties – either of the two homes would be a suitable location.
Suppose A’s home was taken for demolition and based on the market valuation of
comparable properties, he was to be paid Rs.700,000 in compensation. This was, indeed,
a fair valuation prior to the extension of the Metro Rail. The moment the neighborhood
gets connected by the underground railway network, home values sky rocketed in that
locality. Now the market value of B’s property (the home not taken) jumps to Rs.1.2 or
Rs.1.8 million. Had A’s home been spared and the other property been taken, A would
have received a windfall gain exactly the way B does now. Hence, the fair compensation
payable to A should include a share of the anticipated increase in property values of
which he is deprived because he was the unfortunate victim of the taking. What should
constitute a fair compensation should be determined in light of the projected increase in
home values. But the important point is that the displaced homeowner should have a
share in the economic gains due to the development.
Finally, another point needs serious attention. In Poletown, General Motors had promised
6500 new jobs. In Singur, the Tatas may also have promised the creation of thousands of
new jobs. Enticed by such promises, the city government in Detroit and or the state
government in West Bengal went full steam to acquire the land for the companies. But
where is the guarantee that the companies will actually deliver on these promises of
creating these jobs? In reality, there cannot be a binding contract between a company and
the government about the number of jobs to be created. Nor should there be one. The
corporate management is accountable only to its shareholders. The actual number of
workers employed would depend on the demand conditions in the automobile market,
prices of energy and raw materials (like steel), variations in the wage rate, and a host of
other factors. The promise of 6,000 or 10,000 new jobs is only a projection that needs to
be revised in response to changes in economic conditions. Addressing the unemployment
problem in the city or the state is not the responsibility of the company. It is the
19
responsibility of the elected government. Of course, the government can offer special tax
and other concessions to attract new business. But only those concessions and facilities
should be extended which can be easily terminated if the company does not live up to its
promise. In that case, the company will try to deliver on its promise out of its own self
interest. If the company decides to fold and move away, another company make be
courted with similar concessions. When real estate is made available to them at a heavily
subsidized price, a company has much less at stake and can move out without suffering a
great loss (exactly as Tata Motors did in Singur). But if it has to pay market rates for the
land, it would be much more costly for the company to move out.
Land Questions in the People’s Republic of China: 90 years Later
In November 1928 Mao wrote his famous Report on the Struggle in The Chingkang
Mountains in which he divided the agricultural population into three classes by land
ownership: (a) the class of big and middle landlords, (b) the intermediate class of small
landlords and rich peasants, and (c) the class of middle and poor peasants. After the
Communist Party came to power in 1948 (and even before the Revolution in the Red area
held by the revolutionaries) a massive land reform was implemented in the vast
countryside of China. All land previously owned by the big (and typically absentee)
landlords described as the Evil Gentry and a portion of land held by small landlords and
rich peasants was confiscated and redistributed to small peasants and landless workers.
The Party encouraged farmers to form Mutual Aid Teams that made it possible for the
poor peasants to use farm animals owned by the more affluent farmers in exchange of
labor provided to them during the harvesting season. Membership of such Mutual Aid
Teams was entirely voluntary. After the Revolution, several Mutual Aid Teams in a
region were combined to form a Primary Agricultural Producer’s Cooperatives. However,
participating families still owned their land and farm animals and had the right to opt out.
At the next phase of the reforms, these Primary Agricultural Producer’s Cooperatives
were transformed into Advanced Agricultural Producer’s Cooperatives where ownership
of land and animals was transferred form the participating families to the Cooperative
itself without an option for a member family to stay out of these Cooperatives.
20
Subsequently, the Advanced Cooperatives were organized as Communes wielding
political power at the local level. Thus collective farming replaced family farming and by
1958 private ownership of land ended in China. As obligatory members of a Commune
the farmers worked on the collective farm but had no say on what crops were to be
produced, where the output would be sold, and how much of the revenue would be
awarded to the members. Decision making was entirely in the hands of the Party
bureaucracy.
Introduced on an experimental basis as a part of the post-Mao economic reforms, the
Household Responsibility System (HRS) permitted farming households to cultivate small
plots of land where they could decide what crops to raise and could retain the surplus
after paying the due levies. Encouraged by the success of the HRS, the government
institutionalized this nation-wide. Even though land ownership was retained by the
collective, farmers were given land use right to a plot of land for 15 years. Subsequently
the revised Land Management Act (LMA) of 1998 extended such land use right to a
period of 30 years. Also, land use rights became transferable and reallocation of land use
rights was permitted if supported by two thirds of the members of a collective. In 2003
the Rural Land Contract Law (RLCL) provided further details on the rights and duties
concerning household land use rights. In particular, it imposed strict restrictions on land
reallocation by the village collective in its capacity as the formal owner of the land.
All this would suggest that even though the land is formally owned by the collective, a
farmer’s rights are ensured (at least for the 30-year term).
Why, then, is there so much social turmoil and political unrest all across China against
land grabbing?
Between the Idea …
Between 1990 and 2002, 66.3 million Chinese farmers are reported to have lost their
land. Many displaced farmers have voiced their anger about eviction through public
demonstrations. The massive scale of this problem can be judged by the fact that there
were 85,000 public demonstrations involving more than 3 million people just in the year
2005! The Chinese government is visibly concerned about this widespread discontent all
across the country and has given a high priority to the question of illegal and arbitrary
land acquisition. In fact, Premier Wen Jiabo grimly cautioned that the farmland seizure
21
problem was fomenting social unrest and the Party “can’t commit an historic error over
land problems”. It is an irony of history that the Chinese Communist Party that won
political power by fighting for the poor and landless farmers and redistributed land from
the rich to the poor has now to worry about how to protect the poor farmers being
expropriated by a newly emerging class of entrepreneurs and bureaucrats at lower levels
of government.
In the pre-reform era, all agricultural land was owned by Collectives and non-agricultural
land was under state ownership. When urban development called for more land,
municipal governments would acquire such land by a transfer from the collective to state
ownership. However, such acquisition would result in displacement of farmers cultivating
the relevant tracts of land. Because there was no land market, evicted peasants were
compensated with a package that included job offers allowing them to work on the new
state-owned enterprise established on that land, a resettlement fee, and a hukou (an urban
residency permit) which entitled a migrant from the rural areas to settle in a town and
enjoy the benefits of healthcare, access to local public goods (like schools) and crops at
subsidized prices, and retirement benefits enjoyed by city residents8. Overall, a hukou
rather than any cash compensation made this quite an attractive prospect for the displaced
farmer.
Under the Household Responsibility System, farmers were assigned land use rights
initially for a period of 15 years (extended subsequently to 30 years).They were free to
make their crop choice and were allowed to retain all income from farming once they met
their “responsibilities” of quota or taxes to the collective every year in the form of grain
or cash. Now the farmer had a bigger stake in the land he cultivated and insecurity of land
use rights soon became a major cause of social unrest in rural China.
The root cause of the problem was that although in principle a farmer had the land use
right on the land he cultivated for a specified number of years, in reality the Village
Collective engaged in periodic redistribution of land for a variety of reasons. A
distinction is made between a ‘big’ and a ‘small’ redistribution. In a ‘big’ redistribution
all land was taken from the families and redistributed typically after farm land was
8 Ding (2003, 2007)
22
acquired for industrial use and the total remaining agricultural land was reduced. In a
‘small’ redistribution land was taken from only a few families and most other families
were unaffected. A ‘small’ redistribution could occur either due to demographic changes
in individual family sizes (due to birth, death or marriage) or for a local construction
project (like building a school or a temple). In many cases, there is very little
participation by the villagers in the decision making process of land redistribution and at
times a handful of powerful cadres make redistribution decisions simply to demonstrate
their political power. Article 14 of the Land Management Law of 1998 clearly states that
within the duration of the contract for operation of land, any appropriate readjustment of
the land between isolated households shall be made with the agreement of at least two-
thirds of the members of the village assembly and submitted to the township government
and the agricultural administration department of the county for approval. This restriction
on land readjustment was reiterated in Article 27 of the Rural Land Contracting Law of
2002.
Thus, by all accounts, the farmer’s right to land seems to have become more and more
secure through the recent legislations. Why then is the Chinese countryside threatening to
become a volcano of simmering discontent?
… and the reality, falls the shadow
There are several factors within the legal-institutional structure that have fostered the
land-grab campaign by a coalition of developers and local government bureaucrats in
China.
In the first place, all non-agricultural land is state-owned and any urban industrial or
commercial development can take place only on land that is already under direct state-
ownership or agricultural land acquired from the collectives. This has endowed the state
(township) governments with an immense monopoly power in the market for urban land
use rights9. The fact is that when agricultural land is taken, the directly affected people
are the farmers who are being evicted. But they have little (if any) input in such land
acquisition decision.
9 Compensation for acquired of urban properties on land covered by a city plan is determined under the
Urban Buildings Demolition Relocation Administration regulations (UBDRAR) 2001. For a brief
discussion of compensation for urban properties see Chan (2003)
23
In some cases, the problem is further complicated by the fact that there is considerable
ambiguity about which particular government body holds the ownership right over the
land under consideration10. During the collectivist regime, Chinese agriculture was
organized hierarchically as the commune divided into several production brigades and
each production brigade sub-divided into a number of production teams. In the post-
reform years, the town/township generally corresponds to the former commune, an
administrative village is the equivalent of a production brigade, and a natural village or
the villager’s group to a production team. While it is categorically recognized that the
village farmers’ collective has the managerial and administrative rights over the land the
farmers cultivate, it does not have the right to directly transfer such land use right to an
urban developer despite being the notional owners of such land. At times, the town
government has been able to take advantage of this ambiguity to make profits from
village land it does not legally own.
By far the most critical feature of all land use legislation is the provision that agricultural
land may be acquired for public interest. This has enabled local governments to acquire
land not only for infrastructure projects like roads, railway, and dam construction but also
for commercial industries and even private real estate development. There is no denying
the fact that the spectacular rate of growth in China’s manufacturing has created
enormous economic benefit for the country as a whole. Side by side with
industrialization, the nation has experienced urbanization at rapid rate. Shenzhen was a
small village of 3 square kilometers in 1979. By 1999 it had grown into a city covering an
area of more than 140 square kilometers. The built up area in Yantai city in Shandong
province expanded from 120 to 340 square kilometers within a 3 year period (2001 to
2004)11. Needless to say, such geographical expansion of urban areas took place at the
cost of agricultural land in the peri-urban villages.
What motivates the local government officials to facilitate transfer of farm land to urban
development is the immense gap between the value of agricultural land based on
agricultural output and the value of land used for construction based on the real estate
market. In the village of Licun in Yunnan province the leaders got rich by acquiring farm
10 Ho (2001) 11 Ding (2007)
24
land for 12,000 RMB per mu (approximately $12,000 per acre) and then leasing it as
construction land for 80,000-90,000 RMB per mu. In Fujian province a local government
paid 10,000 RMB per mu to farmers and then leased out the land to developers for
200,000 RMB per mu (and even up to 750,000 RMB per mu in some cases). In Hangzhou
province the farmers were paid 160,000 RMB but the land was sold for 2-4 million RMB
per mu.
While some corrupt politicians and bureaucrats at the local levels have made personal
gains from such land deals, the main beneficiaries have been the local governments
because such grab-and-sell activities have provided them with a rich source of revenue in
the face of mounting debts. As the central government shifted the burden of providing
urban public services to state governments, budgetary pressures increased enormously at
these lower levels of administration. Local governments have tried to cope with such
budgetary pressure by raising revenue through land use conveyance fees received from
public land use deals. In the city of Hangzhou, for example, land conveyance fees
amounted to 20% of the total receipts of the municipal government in 2002.
But in all cases the surplus comes largely from the extremely low price paid for the farm
land acquired based on the original use of the land in farming without any relation to how
much it is worth subsequently as construction land.
The fundamental problem is that there is no market for agricultural land in China because
transactions in land rights have remained forbidden since 1949. The guiding principle of
fair and just compensation in case of farm land acquisition has been merely to ensure that
the evicted farmer is not left any worse off. But there is no clear definition of what
constitutes non-worse-off standard of living. Without any market prices to provide
guidance land values are determined by the annual yield. Such valuation of land, in its
turn, determines the amount of compensation payable and an estimate of the minimum
income security that the repossessed land would have provided to the evicted farmer. The
Land management Act provides for a standard compensation of 6-10 times the average
annual output value from the three preceding years and a resettlement fee of 4-6 times the
average output. The combined compensation would not exceed 15 times the annual
output (or 30 times the output when approved by provincial authorities). This many not
sound too unfair except for several reasons. Even after years of reforms the local
25
governments exercise substantial control over what to grow on farmlands. Also, rigid
price control and market disequilibrium keep agricultural prices artificially low. Such
undervaluation of agricultural output, in its turn, lowers the amount of compensation
payable.
The law permits application of different standards and levels of compensation for land
acquired for major projects of national interest like highways and power plants. Local
governments typically exploit this legal provision to under compensate for land taken for
such projects. This raises a question of horizontal fairness and only fuels further
discontent among farmers. For example, farmers in the suburbs of Bingjiang district of
Hangzhou city received 23,000 RMB per mu for the land taken for a segment of the
highway from Hangzhou to Ningbo. In other commercial projects land compensation
paid was in the range of 200,000 – 300,000 per mu. Apart from horizontal fairness,
compensation should also meet the criterion of vertical fairness and take into account
inflation that erodes the purchasing power of payment received which may be inadequate
even at existing prices as the uprooted farmers face higher living costs in an urban area.
The overwhelming evidence is that most of the conflicts about land acquisition in China
are caused by dissatisfaction with the amount of compensation. The local governments
are balancing their budgets on the back on one of the weakest sections of the population
in the Peoples’ Republic and unless appropriate steps are taken the tear in the social
fabric may be beyond repair.
The way forward in China
In principle, farmers potentially affected by land acquisition have a right to be notified
about the proposed repossession of land and to voice their opinion on the compensation
offered through political and legal channels. As repeatedly noted above, land
redistribution requires consent of at least two-thirds of the members of the village
council. That would be applicable both for redistribution within the village as well as
transfer of land for urban development. In fact, in a majority of the cases, villagers are
aware of their legal rights. But its actual implementation presents a completely different
picture. In some extreme cases like in the village of Licun in Yunnan province the village
leadership simply order the villagers to buy certain seeds and grow certain crops which
26
are then sold collectively to some export company without any involvement by the
farmers even though they hold land use rights and legally own the crops they raise12.As
reported above, the villagers were robbed outright through illegal land deals conducted in
the name of the village council but did not find it worthwhile to contest because the same
local elite families have controlled the village for years, manipulate elections to the
village council, and, above all, enjoy the protection of the government officials at higher
levels. In other parts of the country, even though the situation may be somewhat better,
villagers cannot afford to engage a lawyer to represent them in the Court. Also, lawyers
are reluctant to take a case opposing the local government. Even in the rare cases where
the court decides in favor of the farmers, the land is not automatically return to them.
Villagers are more often than not forced to reach an out-of-court settlement with the local
government trying reach a better compensation package as the best feasible solution of
the problem. Another popular method of expressing grievance against the local
government is to directly petition to a higher authority. In fact, various government
departments in China maintain specialized bureaus with service counters to receive
petitions from citizens. In Beijing in 2003 there were 3984 court cases related to real
estates. By contrast, during the first half of 2004 the Ministry of Construction had
received 18,620 petitions13. However, in other areas individuals organizing petition
drives are often intimidated and arrested on false charges to dissuade them from such
activities.
Ultimately relief from illegal and arbitrary land expropriation would require making the
local governments more accountable to the citizens at the grassroots and at the same time
subjecting them to a greater degree of control from the higher levels of government. As
things stand, the local governments function as rogue elements within the overall political
hierarchy in China and the perception that the Politbureau of Chinese Communist Party
controls all layers of government all the way down to the village does not correspond to
the reality.
By far the most important reform needed is in the amount of compensation payable for
the land acquired. Under the present rules the local governments pay a minimal amount
12 Van Rooji (2007) page 216. 13 Van Rooji (2007) p 227.
27
stipulated under law for the farm land they acquire while the real estate conveyance fees
they charge from developers is driven by the market forces for urban land. This has
proven to be a goldmine for them to extract revenues from as they please.
The market forces of demand and supply drive the land conveyance fee that a local
government can charge from a developer. A similar market for rural land can be
developed by permitting transfer of land use rights directly between users. This will allow
the land to be put to its most productive use. At the same time, the ‘price’ will reflect the
relative scarcity of farm land in a specific region. If the acquiring local government has to
pay a compensation for acquired land in competition with other potential bidders the
prices of rural land will be better aligned with its price in urban use.
While a more rational compensation for acquired land alongside a more strictly enforced
policy on acquisition will serve to protect the farmers from exploitation by local
government officials, that will not be enough to successfully rehabilitate the evicted
farmer in a new urban setting.
Most of these farmers, especially the older and less educated ones, will lack the skills
necessary to secure gainful employment outside agriculture. This implies that they are
unlikely to enjoy a stream of income that will enable them to maintain their earlier
standard of living. Moreover, they are unlikely to have the ability to invest any lump sum
payment received in exchange of land wisely to yield future incomes. It would serve
them better if the compensation is made in the form of a stream of payments over years.
Also to induce them to acquire marketable skills, future payments may be made
conditional on job training. The expropriated farmers need to be provided with urban
housing and have to be integrated into the urban government’s social security scheme.
Under a present arrangement the government requires that some of the land grant fee
received by the evicted farmer to be reserved for building expropriated farmers’ social
security fund and the rest comes from a national fund14. But the pension fund is grossly
inadequate to serve them in their old age. China’s high rate of growth in manufacturing
has been supported by a form of ‘primitive capital accumulation” extracting the surplus
from agriculture. Social justice warrants that there should be some form of payback and
14 Zhang and Lu (2011)
28
helping to create a solvent pension fund for these evicted farmers would be an
appropriate step in that direction.
Lessons from the Three Countries
Problems of land acquisition in the US, India, and China are unique in their own ways.
The US with clearly defined property rights is one extreme while China with no private
ownership of land is the other extreme. India represents an interesting case where even
though the landlord has clear title to the land, the share tenant has secure tenancy right to
cultivate the land as a tenant but has no say in the land transaction. But the worst off are
the landless laborers who lose their livelihood as the agricultural land is acquired for
industry or some other kind of urban development.
Taking of private property in the US mostly involves residential or pre-existing
commercial property for urban redevelopment. The case of New London is a classic
example. While strategic hold out for a better price is definitely a possibility, often the
unwilling seller holds out for personal reasons. While the exercise of the Eminent
Domain powers to acquire land for public use may be justifiable in the interest of greater
social welfare at the cost of individual welfare, the Pfizer case in New London illustrates
the danger of land acquisition in the name of public interest where the private beneficiary
of such land taking cannot be forced to deliver on the promise of economic benefit to the
community that prompted such land acquisition.
In emerging economies like India and China urban expansion at the expense of rural
communities is inevitable. The role of the government should be to ensure that the
farmers losing their land along with the large number of share tenants and farm workers
are fully compensated and rehabilitated in a non-agricultural occupation.
Let me clarify one thing in conclusion. This essay is about government acquisition of
land for economic development. Passing judgment on the incidents at Singur (or similar
incidents in Nandigram), New London, or Kunming is not the objective. As an
economist, I have tried to raise and discuss the pertinent issues with the hope that the
reader will form his own opinion having considered all sides of the problem.
29
I personally feel that for the overall benefit of the society, land or factories should be
utilized in that line of production where its productivity is the highest. I am not ready to
take the vow that agricultural land should never be transferred to industrial use.
There are people who believe that while farming cannot be done unless the land is
suitable for cultivation, industry can be located anywhere in the state. This is a false
perception. One needs adequate transportation facility, literate workers, and uninterrupted
supply of power. Without these, factories will not be able to break even. At the same
time, as land gets transferred from agriculture to industry, efforts should be made to
maintain adequate supply of food and raw materials through productivity increase in
agriculture.
There is another important aspect of the problem. Every economic reform produces
winners and losers. An overall improvement in social welfare can never be achieved
unless the gains from the reforms are shared by everybody. Social welfare does not
depend on growth of production or national income alone. Unless people at large benefit
from such growth, even if a section of the population may become better off, the society
as whole becomes poorer. As land gets transferred from agriculture to industry, many
people (like share croppers and landless workers) will lose their livelihood. It would be
morally reprehensible to drive a Nano or a Cadillac on the dirt roads wet with the tears of
the dispossessed. Economic rehabilitation of these displaced workers remains the first
priority of any responsible government.
But a policy of tying up land in agriculture in pursuit of self-sufficiency in food is an
archaic policy in this day and age of globalization. There are those who oppose
globalization. But to paraphrase a fellow economist15, globalization is like gravity. You
cannot be for or against gravity. A wise man decides how to cope with the force of
gravity if he wants to get off the ground.
15 Kaushik Basu in a lecture delivered at Jadavpur University.
30
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